Ever wanted to own part of a gambling company? That opportunity is now upon you with the chance to buy DraftKings stock on the NASDAQ market.
Trading on DKNG shares began Friday morning, and as of mid-morning sat at about $18.30 per share. It’s a new direction for an online sportsbook in the United States of America, and the future implications are interesting.
Why the DraftKings stock deal is so groundbreaking in the US
The price paid to complete the necessary reverse merger and take the company public is remarkable given the fact that DraftKings’ current revenue is quite minimal. Currently, the only significant source of income for DraftKings is its online casino product in New Jersey.
Despite that, Diamond Eagle Acquisition Corp. paid $2.7 billion in cash and stock for it and SBTech. SBTech is a vendor that provides software services for sportsbook operators around the globe.
The new publicly traded DraftKings includes operations on all those fronts. The value of Diamond Eagle’s commitments placed shares of the company at $10 on April 15.
Friday morning’s valuation means the value of that stock grew by about 80% in just over a week. It’s very early in the game, too early to accurately assess the long-term performance of the stock.
Regardless, awareness of the brand and the potential to expand into new markets with several products bodes well. The DEAC forecast agrees with that statement.
Why the DEAC is so bullish on DraftKings’ future value right now
Simply put, the demand for DraftKings’ products should only grow from here. That’s why the DEAC estimates 31% growth from 2017 through next year and estimates $460 million of growth in revenues during that time.
There are new markets on the horizon for its sportsbook product. Tennessee has begun taking license applications for legal sportsbooks and the same will launch in Colorado next week.
DraftKings will be among those to go live in CO on May 1. When Michigan gives the all-clear for online casinos and sportsbooks, DraftKings should be among the offerings there as well.
Other jurisdictions are on the verge of launching and legalization. For example, a bill to legalize sports betting is on the governor’s desk in Virginia and sportsbooks just across the Potomac River in Washington, D.C., could go live this year as well.
Of course, DraftKings will have competitors in these new markets. Few of them will come into these new jurisdictions with the amount of brand power and ability to blitz new potential customers with marketing that DraftKings possesses, however.
Add in SBTech’s clients, through which DraftKings will actually be acting as a vendor to some of the competitors for its casino and sportsbook brands. That creates great potential for revenue for years.
As anyone in business understands, however, revenue and profit aren’t the same things. DraftKings has a long history of running in the red.
Can taking the company public make it a profitable venture?
DraftKings reported a loss of nearly $143 million in the past fiscal year. It’s unlikely the acquisition of SB Tech will offset the expenses, and with each new market DraftKings enters, those expenses increase.
If the DEAC’s forecast is accurate, 31% growth every four years won’t be sufficient to even offset those increased expenses, much less outweigh them. The path to profitability is much more complicated than simply selling a lot of shares in the company.
That will help to ensure DraftKings has the capital necessary for growth, however. For those who buy now and stick it out, it’s sure to be an interesting ride.